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What would victory in the War on Poverty look like?

January 9, 2014

Bob Murphy writes, “Surely to actually “win” the War on Poverty would mean that the government could stop spending money, because every household were self-sufficient. The criterion can’t be, “After you account for how much money we’re still throwing at it, the net result is better.”” and presents this chart:

Two-Poverty-Trends

The poverty rate in the U.S. is measured as pre-tax pre-transfer income (the green line). I’ve always thought that was silly because one’s actual living standard depends only on post-tax post-transfer income. If we care about how actual poor people are living, only the black line in the chart matters.

A “War on Poverty” centered on transfers only makes the green line increase! One of the fundamental principles of economics is that people respond to incentives. If you pay people who don’t work, people will respond by working less. People who work less earn less. Economists call this the marginal tax rate. Even if you don’t actually pay any taxes, if you lose a welfare benefit by working, it encourages you not to work just as if you had been taxed for working.

To reduce the green line to 0%, I have a modest proposal: anyone who doesn’t earn more than the poverty line will be tortured to death. I guarantee that after a few years, there will be no more poor people! But that’s ridiculous. No one wants a policy which reduces measured poverty if it means reducing the living standard of the poor.

While I’m sure there are still people living in deprivation, the average person living under the U.S. poverty line has plenty to eat, has air conditioning, a car, cable TV or internet access, and other amenities. Since poverty is an inherently relative concept, “winning the war on poverty” shouldn’t include reducing the measured poverty rate to zero.

Fighting poverty will always be a continuous thing. As societal norms change, the amount of resources will change to match them

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